Why Sell Your Business Once When You Can Sell It Twice?

hi there business owners especially those of you who are contemplating selling your business. today in this video I want to talk to you about a concept that I believe you might find interesting. It's called multi-sale strategies. so basically why selling your business once when you can sell it twice 3 times, 4 times, 5 times etcetera, right? now you might be asking how does it work isn't that once I sell my business I cash out and move on. not quite, right? so this multi-sale scenario often happens when a private equity firm comes into the picture. how does it work so let's say the first PE firm knocks on your door and let's say long story short you agree to sell your business to them, right? and let's say this PE firm their intention in buying your business is to use your business as the platform to acquire further businesses. what's typically the case is where they pay you the majority of the price in cash you walk away not you don't walk away but a majority of the price is in your pocket in the bank you pay some taxes you know, let's say 70% you get to keep 70% and they want you to invest the 30% proceed into this investment vehicle. you know that PE has a define holding period right five years or seven years and after five years 7 years the holding period they have to exit right? so at exit let's say PE firm No. 2 comes in buys out PE No. 1 also buys your stake in the business and let's say again you know they pay you 70% of the proceeds from your stake right you get to keep 70% of the proceeds from selling your stake and 30% reinvested in in the investment vehicle that PE firm No. 2 wants you to the same cycle repeats so PE firm No. 2 after running the business for five years they have to exit PE firm No. 3 comes in buys out PE firm No. 2 also buys your stake paying 70% of the price of your proceeds you get to keep 70% they make you invest 30% in this investment vehicle blah blah blah blah blah so that's how you sell your company for more than once. to make this clearer I'm gonna use an example with some hypothetical numbers and assumptions okay so here you go let's move this to the side alright assumptions okay so assuming that all these private equity firms are able to generate an average 20% annualised return on on the cash on the money you put in holding period is 5 years cash out amount meaning they they pay you 70% for your stake right and they would they make you invest or roll over 30% of that your the the proceeds back into the investing vehicle alright so here's cycle 1 2 3 4 5 means PE firm 1, PE firm 2, PE firm 3, 4 and 5, alright? now assuming your business originally your business is worth $100 million alright and the PE firm 1 pays you 70% which is $70 million so that this amount goes to your bank you pay taxes you get to keep it right and they make you they want you to roll over 30% of that the of of the the total proceeds the $100 million $30 million back into the business alright the investment vehicle alright so $30 million what's the value of $30 million after five years $74 million that's based on the assumption 20% annualised return five years over five years, alright? so after five years your $30 million becomes $74.65 million PE No. 2 comes in so they they buy out the PE firm No. 1's stake and this is for your stake for your stake which is $74 million here you get to keep 70% right 70% of that amount so this amount goes to your bank you pay taxes you get to keep it and 30% of this amount they want you to reinvest or roll over into the investing vehicle the same way PE firm 1 did, right? so alright so this $22 million that you just rolled over or invested becomes $55 million $55.73 million after five years based on these assumptions again alright so blah blah blah PE No. 3 comes in $39 million your takeaway to your bank you reinvest $16.72 million into the the PE firm 3's investing vehicle after five years that amount grows to $41 million alright blah blah blah blah blah blah by the time PE firm 5 comes in you take away $21 million that's you know 70% of of your stake $21 million and you reinvest 30% of that amount which is $9.32 million into PE firm 5's investing vehicle alright so that's the you know what the $9 million becomes after five years so let's look at what you get from your perspective right after five rounds of PE what have you know what this is pre tax right so your the initial cash out $70 million remember your original business was worth $100 million PE paid you $70 million 70% and then $30 million was reinvested right so that's your initial cash out $70 million further cash out $142 million which is sum of all the future cash outs amounts, right? and then the final stake which is this amount you remember the the final the fifth PE comes in grew grew your investment from $9.32 million into $23.18 million right? so that's the stake the value of your final stake so your total wealth is $235 million right so okay after five rounds of sales right? remember the first round of sales had you kept 100% walk away cash out 100% it it would have been $100 million right the value of your business but because you know you you you kept 70% and you reinvested 30% and each time right each time that this amount grew higher after 5 years this amount grew to this this amount grew to this this amount grew to this and etcetera so your reinvestments grew over time to increase your wealth to $235 million instead of 100 million right? remember if you sold the business once you would have made $100 million but you sold your business five times you would have received $230 million obviously that's based on the assumptions that okay move this one away that's based on the assumptions that the PE firms grew your investment by 20% per annum and holding periods 5 years right and they pay you 70% in in in cash out proceeds and the rollover investment amount 30% so there you go that is a concept of selling your company multiple times and if you can do that multiple times then why not especially if it has the potential to significantly increase though your wealth the most important aspect to make this entire thing work as planned is to ensure that you pick the right PE the one that can actually grow your investment by 20% because if this figure is lower then you might not get that amount right? if you do decide to sell your business multiple times it's very important to pick the right PE partner they're essentially in you know investing for you you still running the business assuming that their strategy the things they they bring to the table could grow the business by 20% per annum so there you go hope you find that helpful for those of you who need help with evaluating a PE offer the terms the conditions and what they mean for you from a financial perspective please feel free to reach out to to me I'm happy to take a look for you thanks for watching